Installux: a vertically integrated aluminum profil producer with a rock solid balance sheet and Spanish entities all set to fully contribute
A producer of aluminum based products with a vertical integration
The company was created in 1923 by Alfred Ollier. In 1987 the company was taken over by its employees. At the same time Christian Canty became CEO.
Installux produces aluminum based products for its clients. Their clients are artisans which sell aluminium profiles and accessories. This contributes to their moat.This requires an ability by Installux to adapt to the specific demands of their clients. That is why they have extrusion, crimping (associating two profiles which enables to have bi-coloured profiles and maximizes product personalization) and completion which enables the finishing of a product. They can produce specific products that bigger competitors will not serve as they are too small or are asking for a specific design. They have built a close relationship with their clients which reduces churn. Installux will not pass price increases if it can help their clients and will catch up later. It contributes to their good relationship with their clients as well as having a very low delinquency rate. The business is linked to the cocooning thematic as well as to housing market. It can sometimes be impacted by tax incentives which will boost demand.
Installux is also an aluminium trading company. This requires a strong balance sheet. Their margins will be impacted by the price of aluminium. They have managed to take advantage of price swings to accumulate inventory when prices were interesting. The latest case was during the Covid 19 pandemic. The products, which are currently being sold, have been produced with aluminium acquired at a low price. This can explain part of the very good fcf generation in the first half 2021 numbers. Productivity improvements is a top priority.
There is a vertical integration. It began in 2003 with the FAC acquisition, continued in 2010 with the IES acquisition. They have bought their suppliers in order to keep the margin within the company but also because there were not many suppliers left.
Installux first transforms the aluminum through the extrusion process to give it the desired form and can do surface treatment on the products (to give it specific characteristics) and then finally sell the product to its clients. Indeed, Installux extrusion and surface treatment entities also sell their products outside of Installux (more or less 42% for Installux and the remainder for external clients).
4 BU’s: building and home improvement, surface treatment, extrusion and space planning
2019 numbers (non covid year) illustrates their profitability levels. Installux is the entity for Building and home improvement, FAC (France) only does surface treatment, IES (Spain) does both surface treatment and extrusion, Sofadi-Tiaso is the space planning entity.
Extrusion profitability should improve as Spanish entity is all set up (IT, new machine, corporate culture, know how). Building and home improvement BU already had better numbers in 2020 with lower sales thanks to aluminum prices. Space planning is profitable and part of its offering is aluminium based.
High margins are done through the high value added services: surface treatment and tailored made products. Extrusion should see a profitability increase with the Spanish sites.
Selling of the last loss making entity
In a pragmatic move, probably linked to the son taking over from the father, Rocha Habitat was sold in 2020. It was a cyclical business which was unprofitable even after multiple reorganizations or strategy changes. They offered sun protection products ( pergola…). Now we only have profitable entities. The company appears pragmatic in its ability to close, sell or set up new entities.
Spain all set up to produce full throttle
Between 2018 and 2020, Spain was the main area of focus. 12,4 MEUR were invested. 7,2 MEUR for a new extrusion production line and 5,2 MEUR for the acquisition of the surface treatment unit. They now have two production sites (Parets and Santa Oliva). The Santa Oliva site was acquired for 5,2 MEUR with 0,9 MEUR badwill in 2019 from its main supplier at a very good price. The other site was upgraded. The Santa Oliva site benefited from a new IT system, bringing about the company culture, transferring the extrusion line from the Santa Perpetua site which was closed. Parets is an extrusion and crimping site while Santa Oliva is an extrusion, finishing and lacquering site. 2021 will see these two entities advance at full throttle.
French production sites are held by family holdings
Three family real estate companies own the operating real estate of Installux in France. Rent paid by Installux is 4,6 MEUR if we use the sales number of these companies. On the other hand, the Spanish assets are held by Installux. This happens quite often in France. Even though, I am not a fan of this, management has shown its quality in the past.
Fewer information, generation change and market compartment switch
Until 2019, Installux published twice a year an information letter (Finances Info). This letter gave interesting insights. In 2020, Installux changed market compartment and is now listed on the Euronext Growth where costs and publication constraints are lower. Finally, Christophe Canty took over from his father in 2020. There is a willingness to boost organic growth as management thinks that past growth has not been satisfactory. Different initiatives such as boosting commercial animation have been taken with the setting up in 2019 of Campus Aluminium whose aim is to build a large range of services to help their customers develop their business.
Pragmatic repurchase of shares, bought back the employee shares and regular dividend
In 2019, Financière CCE (the Canty family holding) bought 100% of Financière des Salariés d’Installux (which owned 2,55% and was held by some employees). Even if the employees are no longer shareholders of the company, they receive participation and profit sharing incentives which represent between one to two months in wages. It is a historic practice by the company. My understanding is that employees are very happy to work at the company and some former managers said that their biggest mistake was to have left Installux.
In 2019 and 2020, Installux bought back 15 614 shares at an average price of 335 euros and 5 732 shares at an average price of 290,3 euros. Their timing is very good especially in 2020 where most of the buybacks took place at the beginning of the pandemic. Current price limit is set at 400 euros which appears too low. We will soon know if they did some buybacks in 2021.
Capital allocation (buybacks and dividend) appear guided by the fact that Installux needs to keep the shareholder equity at a certain level so as to pay out the participation and profit sharing to the employees.
Management has no willingness to take the company private even though one could always wonder why they are quoted.
Valuation: 2021 is set to be an exceptional year and some ideas on how to deploy excess cash
Installux historically has a net cash positive balance sheet. The company never sustained a consolidated loss. The sole financial debt is in fact a current account advance given by the family holding (Financière CCE). The amount increased during the pandemic at 6 MEUR (up from 4,8 MEUR) to give additional financial solidity. In 2020, there was a 25 MEUR net cash position.
Dividend yield currently stands at 1,7% as historically Installux pays out a 8 euros dividend. The only exceptions being 2019 due to the covid where there was no dividend paid out and 2017-2018 where dividend was reduced due to strong investments in Spain even though the company could have easily maintained this amount. It is possible that they will be an exceptional dividend this year as Installux needs to keep the shareholder equity at a certain level so as to pay employee participation and profit sharing.
ROCE on average has been at 21,7% during the 2014-2019 period. Even if 2018 and 2019 saw a decline due to the investments in Spain and to the losses sustained by the now sold Roche Habitat entity.
The 2021 half year results gives us some flavor on 2021 and on the rebound which is taking place. Installux is catching up the backlog it had from 2020 and is benefitting from the cocooning thematic. Net cash position increased to 36 MEUR (+11 MEUR in six months), EBIT is at 9 MEUR which is a historic number. FCF is at 15 MEUR implying a FCF Yield of 15% and this is only with half year numbers. Note that I use the EV figure for my FCF yield as it enables us to take into account the solid balance sheet structure. 2021 should be a historic year and 2022 should be interesting with a good dynamic with the backlog due to cocooning.
Net cash position by 2021 will be easily above 40 MEUR. Excess cash (amount above 20 MEUR) could be used through an exceptional dividend or through a massive share buyback. At the current share price (480 euros),the use of 20 MEUR would represent 71 € dividend per share. A buyback at the current share price would take out 14,8% of outstanding shares. Balance sheet would still be extremely solid and all the sites are modern. Hopefully management will take the right steps and one of them would be to increase the buyback limit which is currently too low.
The 10% hurdle rate can be easily attained with this exceptional FCF generation year but even if this fcf were to be divided by 2, adding the annual dividend yield (1,7%) and a 2% growth makes this hurdle easily attainable. The new management knows that they have to increase the sales growth dynamic and are taking different steps as we have seen before. And let’s not forget the Spanish sites which are now fully in place after three years of setting up, external growth, new IT and best practices transfer.
Going forward points to follow are the organic growth, Spanish sites ramping up and the use of the excess cash which could be used by either buying back shares or through an exceptional dividend.
In the meantime, thanks again for signing up and feel free to talk to your friends / fellow investors about the French Hidden Champions Substack. You can also reach out by email or by DM on Twitter @FoxCastlehold.
Disclaimer: The above article constitutes the authors’ personal views and is for entertainment purposes only. It is not to be construed as financial advice in any shape or form. Please do your own research and seek your own advice from a qualified financial advisor. The authors may from time to time hold positions in the aforementioned stocks consistent with the views and opinions expressed in this article. Disclosure – we hold a position in Installux at the time of publishing this article (this is a disclosure and NOT A RECOMMENDATION).